Written by attorney Alec Sauchik

Federal/NY Stark Laws Basics (by Alec Sauchik, Esq.)

Stark Overview The federal Stark law prohibits physicians from referring Medicare or Medicaid beneficiaries to an entity in which they (or an immediate family member) have a financial relationship for designated health services (“DHS"), unless an exception applies. Stark DHS There are several categories of DHS. Some of these categories are defined by reference to CPT and HCPCS codes. These include:

  • Clinical laboratory services
  • Physical therapy services
  • Occupational therapy and speech pathology services
  • Radiology and certain other imaging services
  • Radiation therapy and supplies

The list of codes is updated on an annual basis in the physician fee schedule. This list is also maintained on the CMS website. The remaining DHS categories are based upon regulatory descriptions, and not codes. These categories include:

  • Durable Medical Equipment (“DME") and supplies
  • Parenteral and enteral nutrients, equipment and supplies
  • Prosthetics, orthotics and prosthetic devices and supplies
  • Home health services
  • Outpatient prescription drugs
  • Inpatient/outpatient hospital services


  • Spouse
  • Birth or adoptive child
  • Sibling
  • Stepparent/Stepchild/Stepbrother/Stepsister
  • Father-in-law/Mother-in-law/Son-in-law/Daughter-in-law/Brother-in-law/Sister-in-law
  • Grandparent/Grandchild/Grandparent’s spouse/Grandchild’s spouse

Common Relationships Impacted By Stark Many common relationships can trigger the need for a Stark analysis. Examples of common healthcare relationships that can trigger Stark include, but are not limited to, the following:

  • Physician employment and independent contractor agreements
  • Equipment and space lease agreements
  • Medical director agreements
  • Hospital/physician recruitment agreements
  • Arrangements between physicians and other DHS providers (e.g., DME suppliers and home health agencies)

Stark’s Applicability Within The Group Practice Many do not understand that Stark applies even within a physician group practice. Stark applies to referrals of DHS within a physician group practice. For example, if a practice provides physical therapy, X-rays, or ultrasounds within its practice, Stark will be implicated and the relationship between the physicians and the practice must be analyzed to ensure compliance with a Stark exception. Stark Penalties Penalties for violating Stark can be severe. Stark penalties include denial of payment, refund of payment, imposition of a $15,000 per service civil monetary penalty and imposition of a $100,000 civil monetary penalty for each arrangement considered to be a circumvention scheme. Healthcare providers also should bear in mind that Stark violations can be raised in the context of civil false claims suits brought by whistleblowers. COMMON STARK LAW EXCEPTIONS

  • Bona Fide Employment Relationships

  • Applies to any amounts paid by an employer to a physician (or an immediate family member of the physician) who has a bona fide employment relationship with the employer if the following conditions are met: (a) the employment is for specific, identifiable services; (b) the amount paid is consistent with fair market value and not determined in a manner that takes into account the volume or value of referrals made by the physician; and (c) the compensation is provided under an agreement (written or verbal) that would be commercially reasonable even if no referrals were made by the physician to the employer.

  • The employment exception is frequently relied upon by group practices because of the Stark law position that referrals within the group for DHS are covered by the Stark law.

  • In-Office Ancillary Services

  • Allows physicians to refer DHS within the physician’s own group practice and allows the group to bill for such services without violating the Stark law since the Stark law is clear that it considers a referral by a physician to another physician within a group practice to be a prohibited referral for purposes of Stark.

  • The services must be personally furnished by (a) the referring physician; (b) a physician who is a member of the same group practice as the referring physician, or an individual who is supervised by the referring physician; or (c) another physician in the group practice.

  • The services must be furnished in one of the following locations: (a) the same building in which the physician or group practice has an office that is open to patients at least 35 hours per week, and where the physician or a member of the physician’s group regularly practices medicine and furnishes physician services to patients at least 30 hours per week; (b) the same building in which the patient usually receives physician services from the physician or group practice, where the physician or group practice owns or rents an office that is normally open to patients at least 8 hours per week, and where the physician regularly practices medicine and furnishes physician services to patients at least 6 hours per week; (c) the same building in which the physician is present and orders the DHS or the physician or a member of the group practice is present while the DHS is furnished, where the physician or group practice owns or rents an office that is normally open to patients at least 8 hours per week, and where the physician or a member of the group practice regularly practices medicine and furnishes physician services to patients at least 6 hours per week; or (d) a “centralized building" used by the group practice for the provision of some or all of the group’s clinical laboratory services or DHS other than clinical laboratory services.

  • The services are billed by: (a) the physician performing or supervising the service; (b) such physician’s group practice, under a billing number assigned to the group practice; (c) an entity that is wholly owned by such physician or the physician’s group practice under the entity’s own billing number or under a billing number assigned to the physician or group practice; or (d) an independent third-party billing company acting as an agent of the physician, group practice or entity, under a billing number assigned to the physician, group practice or entity.

  • Rental of Office Space and Equipment

  • Physicians and medical groups commonly lease office space and medical equipment to other medical groups, physicians, and facilities to which they refer patients. To deal with common arrangements, separate Stark law exceptions exist for the rental or leasing of office space and equipment, with the following requirements:


  • The Federal Stark Law prohibits certain referrals by physicians. New York state law prohibits referrals by practitioners, which encompasses all individuals covered by the federal prohibition but also includes nurses, midwives, physician assistants or special assistants and physical therapists.
  • While the federal law covers only those referrals for which the services will be reimbursed by Medicare or Medicaid, the state law is far more expansive and covers all referrals of designated health services, regardless of payer class. All services paid by private insurance and managed care plans as well as self-pay patients are covered.
  • Generally, the federal law contains exceptions that do not appear in the state counterpart. These include, among others, exceptions for (1) services provided by academic medical centers; (2) nonmonetary compensation with a monetary equivalent up to $300; (3) fair-market-value compensation arrangements; (4) incidental medical staff benefits provided by a hospital to its medical staff; (5) compliance training provided by a hospital to a physician; and (6) indirect compensation agreements.

Additional resources provided by the author

Free Q&A with lawyers in your area

Can’t find what you’re looking for?

Post a free question on our public forum.

Ask a Question

- or -

Search for lawyers by reviews and ratings.

Find a Lawyer